What is Pareto Analysis and How it is Applied in Six Sigma Projects
What is the Pareto Principle ? The Pareto Principle was an observation of a famous Italian economist named Vilfredo Pareto. He was trying to analyze the distribution of income amongst the population of Italy. That is when he observed that 80% of the income generated went to 20% of the population. He then began observing […]
What Are Mobile Wallets?
Mobile wallets have become the latest startup sensation. Companies like PayTm have the first mover advantage in this space. However, other companies like MobiKwik, Phone Pe, M-Pesa etc. are quickly moving into this space. It is surprising that an area of business which did not even exist a few years ago is now on the […]
Foreign Investment and its Impact on Developing Countries
What is FDI (Foreign Direct Investment) ? FDI or Foreign Direct Investment is the practice of international businesses investing in countries other than their home country. In recent months, there has been much debate over whether opening up of economies to foreign direct investment is good for developing countries. Further, foreign direct investment is seen […]
Supply Chain Network Design & Contributing Factors
Designing Supply Chain Network for each industry or business involves arriving at a satisfactory design framework taking into all elements like product, market, process, technology, costs, external environment and factors and their impact besides evaluating alternate scenarios suiting your specific business requirements. No two supply chain designs can be the same. The network design will […]
The Effect of Rising Oil Prices on the Indian Economy
The prices of oil have once again started going through the roof. In the past few years, the prices of oil have seen a steady downturn. This can be largely attributed to the supply gut that was created as a result of a new technology called “fracking.” The world has changed immensely since then. Geopolitical […]
The confidence interval is a central concept of hypothesis testing. Although understanding its mathematical and statistical meaning is beyond the scope of this module, one needs to have a fair idea of the concept. Hence, a brief introduction of the confidence interval that is essential for the Six Sigma project team to understand is as follows:
The normal distribution is a continuous distribution. This means that the probability of reaching the exact point is zero. This conclusion has profound implication for estimation. This is because instead of reaching a point estimate, one needs to pen down an interval estimate to get a realistic answer. Thus we can’t say the probability of the value being exactly 100. However, we can make a fairly educated guess about whether the value will lie between 80 and 120.
A confidence interval attaches a probability to the above statement. For instance if we say that a value will lie between 80 and 120 with 90% confidence, we mean to say that there is a 9 out of 10 chance that this will be the case. However statistics operate on the law of large numbers and hence these values are expected to hold true only after a large number of experiments have been performed.
The confidence interval is therefore a result of using sampling. In the above case we can conclude that in a sample 90% of the total observations taken will have the value lying between 80 and 120.
The factors that influence the confidence interval have been listed down along with their precise relationship:
Hypothesis testing is almost always done on samples. Hence, we must understand that there can be a difference between the values drawn from the samples and the actual value of the population. This is what we call sampling error. This plays a vital role in interpretation of hypothesis testing. Hypothesis tests with a higher confidence level are more accurate than the ones with lower confidence levels.
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